(aka Material Shortages, Supply Chain Disruptions and Some Material Cost Increases)
Here at Welsh Construction, we continue to see daily changes in material and equipment supply chains, as well as material cost increases as it relates to the low rise commercial and tenant improvement arenas. We want to weigh in on these movements and also provide some recommendations to mitigate these risks in the near term.
So, what is happening now, why is it happening and what do we see as we enter a shiny new 2021?
Material & Supply Chain Impacts
Random manufacturing and supply chain challenges related to the COVID-19 pandemic continue to spring up. Doors, hardware, lighting, appliances and flooring are all materials we have seen experience delivery disruption.
One area whose supply chain has been severely impacted has been the appliance market. What started in the spring has continued through the year, and we see no sign of this changing anytime soon. Due to COVID-19 plant shutdowns in March, April and May, we saw the first sign of supply chain disruption in this sector of the industry. The issue only compounded with shortages in some foreign-made parts, such as compressors and wiring components. Consequently, when plants were ready to reopen, the parts weren’t available to the manufacturers. To top it off, everyone decided to spend their vacation money on some home upgrades – especially in the kitchen! We are now seeing some appliances have availability, but the key is to be flexible on bells and whistles and source suppliers’ regional stock. For now, prices seem to be similar to last year’s pricing.
Labor Outlook
Scheduling labor has become trickier than normal, as families try and manage distance learning and potential COVID-19 exposures and quarantining. On any given morning, we could find out our workforce is down by as much as 10% or 15% due to COVID-19 related absences. This has made planning and anticipation of task completion extremely difficult. We are hopeful that this begins to stabilize as more and more people are vaccinated and schools begin to open in 2021.
Construction Pricing Outlook
The lumber market continues to climb, even with some seasonal corrections in November. Currently, lumber futures are twice their average level for this time of year. Copper futures continue to climb with futures hitting highs not seen since 2013. Although bitumen material is down, prices for aluminum, iron ore and rubber have been trending up recently. In early 2021, we are also expecting material cost increases in wallboard/drywall, acoustical ceilings, flooring and steel.
The good news is that we expect these increases to be held at bay due to very competitive subcontractor pricing, as the specialty trades aggressively fill their backlogs to overcome the contraction of commercial construction due to COVID-19 this year. All things considered, we are seeing about a 2.5% increase in construction costs from a year ago.
Recommendations for 2021
If you held off with a construction project in 2020, or are considering a project in 2021, we suggest dusting things off quickly. As mentioned above, subcontractors are anxious to fill their plates and get some backlog on the books. As a result, projects procured earlier in the year will have the best chance of fighting off material increases due to the aggressive nature of the current trade market. Typically, by mid-June most of the “aggressive backlog market” has slowed, and if material pricing maintains current trends by mid-summer, we could see higher escalation.
In addition, we recommend allowing more time for procurement. Get teams pulled together earlier so there is more time to work with manufacturing and minimize schedule disruptions.
As always, if you have any commercial construction needs, our team at Welsh Construction is here to help! Reach out to us any time!
JASON MCMILLEN Director of Operations, Welsh Construction